That Price Becomes A Stigma

A report from Realtor.com. “Is the party really over? Over the last decade, the seemingly unstoppable growth of the American housing market has created a bonanza for sellers, a cutthroat environment for buyers, and an endless source of fascination for just about everyone else. It seemed to be an economic perpetual-motion machine. Could home prices in top markets really just keep going up and up … and up?”

“Well, no, actually. In the last few months, the real estate market has actually begun slowing down—including in some of the big cities that have been leading the go-go post-recession housing boom.”

“‘There’s a rebalancing that needs to happen,’ says Len Kiefer, deputy chief economist at Freddie Mac. ‘Prices have risen so high in some of these markets that it’s very tough from an affordability perspective [for buyers]. … It’s not surprising to me that we’re seeing a little bit of a leveling off.'”

“So stash the B-word, at least for now: The dreaded Housing Bubble isn’t poised to pop. There are simply more homes for sale now and fewer buyers vying for them. In other words, the market is returning to some semblance of reality.”

“‘Are we going off the cliff?’ says Honolulu-area real estate broker George Krischke of Hawaii Living. ‘I don’t have a crystal ball, but I don’t think so. … It’s a temporary slowdown and may be a plateau.'”

“Borrowers are facing a little ‘sticker shock,’ says Julie Aragon, a mortgage broker at Julie Aragon Lending Team in Santa Monica, CA, who works with buyers from San Diego. ‘They just don’t realize how much [rates] went up. Even an eighth to a quarter of a percentage point increase is going to make a big impact.'”

“That’s particularly true in high-priced areas like the Southern California city of San Diego, where the median price of $659,400 is more than double the national figure. ‘I’ve seen people lose $50,000 in purchasing power,’ Aragon says. And that’s giving buyers pause.”

“Higher rates are also stymieing move-up buyers who want to trade their starter homes for larger, nicer homes, but are reluctant to give up their existing low mortgage rates to do so, says Ted Wilson of Residential Strategies, a housing consultant based in the Dallas area.”

“The reality is that rates are still low compared to previous decades, when double-digit rates weren’t uncommon. ‘Folks have been used to a world of dirt-cheap mortgage rates,’ says Freddie Mac’s Kiefer. ‘We’re moving to a world where rates are more in line with what we’d expect to see over the long term.'”

“Fact is, prices can’t increase at record levels forever. And we may have finally hit an inflection point in many bellwether markets. ‘To some degree, the markets that went up the most and the fastest just pushed too hard [in prices],’ says Patrick Carlisle, chief market analyst for Silicon Valley and the Bay Area at the real estate company Compass. ‘Over the summer, it was like something cracked, and people said ‘I can’t do this anymore.'”

“Add in those higher mortgage rates, and ‘that’s a whole lot more money that someone is going to have to spend to pay their monthly mortgage on a 1,500-square-foot, three-bedroom, two-bathroom ranch house that suddenly costs $2 million,’ says Carlisle.”

“So is it any big surprise that about 36.8% of San Jose-area sellers have had to slash prices on their homes in the last year?”

‘President Donald Trump’s tax changes have also hit Silicon Valley and the Bay Area hard. Homeowners can now only deduct from their taxes mortgage interest on loans of up to $750,000, down from $1 million. This isn’t just a rich person’s problem—it’s hard to find even a modest starter home for less than $1 million in this region.”

“Then add in a new $10,000 cap on property and either sales or income taxes. Suddenly, owning a home is a whole lot more expensive.”

“The entire West Coast, long the growth capital of the United States, is showing signs of being overheated. ‘For everyone, there’s a maximum to what they can pay,’ says Annie Radecki, senior manager at John Burns Real Estate Consulting, who covers Seattle and Portland.”

“More and more homeowners, fearing that the real estate market has reached its peak, are champing at the bit to sell. And that has led to a relative glut of available homes—more than even the hottest markets can easily absorb.”

“‘There’s a perception [among owners] that the market has had a good run and maybe it’s time to cash in,’ says Honolulu broker Krischke. ‘The good times have to end.'”

“In Stockton, CA, which came in first in our slowdown rankings, price drops are common because sellers shot too high, says local agent Jerry Patterson of Cornerstone Real Estate Group. This is a city that has long been plagued by crime and poverty. But its location, about an hour and a half northeast of Silicon Valley and close to the vineyards in Lodi, CA, gave it a boost in recent years, with annual prices rising 8.2% last year and 14.3% in the prior year.”

“But with more homes for sale and less competition for them, ‘buyers are now in a bit more of a power position,’ Patterson says. ‘[They’re] able to flex their muscles a little bit more.'”

“And sellers are learning the hard way that the danger of pricing their homes too high is that they can wind up stagnating on the market. ‘They’re entering what we call the ‘sludge,’ says Nashville real estate broker Brian Copeland, of Doorbell Real Estate. ‘There’s nothing wrong with their house. But that price becomes a stigma.'”

“In Dallas, ‘There’s more inventory than there is demand,’ says Dallas-area Realtor Dee Evans of Ebby Halliday Realtors. But she’s beginning to see the pace of new construction slowing, and those extra units are being absorbed by buyers. ‘Hopefully, the builders will be smart about putting less new stuff up.'”

‘In Stockton, CA, which came in first in our slowdown rankings, price drops are common because sellers shot too high’

Eeee-bola Stockton!

I’ve been wondering when this would hit the burgs in California. From the article:

To come up with our rankings of the real estate markets that are slowing down the most, we looked at annual price, inventory, days on market, and price reduction changes from October 2017 to 2018 in our realtor.com® listings in the 100 largest metros.

Stockton has been fun to watch. I recall many of these homes back in 2010-2011 selling for 20-50k and then watched them creep up and then explode into the 200-300s. UHS marketing for these homes to the FB was the proximity to Silicon Valley. May be an hour and 1/2 commute if your driving between 8pm and 4am but any other time between you should anticipate double or triple the commute. I have a friend who was commuting from Tracy (nearby to Stockton) quit his job in San Jose because he spent more time on the road commuting than at the office.

“This is a city that has long been plagued by crime and poverty. But its location, about an hour and a half northeast of Silicon Valley”

Same problem around NYC I95 in CT …..I keep asking people why do we all have to work M-F 9-5?????? How do we time shift work?
Every politician i meet I propose giving companies tax breaks based on the number of employees who work 2nd 3rd shift holidays and weekends. call it prime time pricing…..
…………your driving between 8pm and 4am

‘There’s more inventory than there is demand…Hopefully, the builders will be smart about putting less new stuff up’

Oh, remember the days when these used house salespeople would go on and on about how we just need more shacks? You know, so prices would come down and all the little people might be able to borrow $400,000!

‘More and more homeowners, fearing that the real estate market has reached its peak, are champing at the bit to sell. And that has led to a relative glut of available homes’

Wa? But shortage? Notice how quickly the language changed. And no mention of moving. Not downsizing, but rather the housing market is like pork bellies. Turn those machines back on!

“but rather the housing market is like pork bellies.” – Exactly! You’ve been financialized!

After the FIRE cartel-induced GFC 10 years ago due to collapes of HB 1.0, the one-trick pony Fed pulled out all the stops to bail out said cartel with all kinds of radical, unprecedented monetary policies (read financial heroin), which had the desired effect. Then – in a repeat of HB 1.0 – when the housing recovery started to reach stall speed, lending standards, FICO scores, income requirements (LTV/DTI), etc., were again “relaxed” under the pretense of “helping the little people”, leading to – yet again – the peak prices and insanity of HB 2.0. As the Fed is now sending the addict to the rehab clinic via quantitative tightening (QT) and raising the FF rate, we’re seeing withdrawal symptoms. Did anyone not expect this outcome? It may feel great on the way up, but at some point the effects wear off and reality bites. You know it’s serious when realtor.com is admitting a problem; that denial is not a river in Egypt… We need HA again (Housing Anonymous). End the Fed. “Pay no attention to the man behind the curtain” at your own peril. The enemy within.

Insanity: “doing the same thing over and over again and expecting different results.” – Narcotics Anonymous

As the Fed is now sending the addict to the rehab clinic via quantitative tightening (QT) and raising the FF rate, we’re seeing withdrawal symptoms.

But as we used to see in Celebrity Rehab, as the pain starts to hit, the addict who was dead set on kicking is suddenly looking for the door. Trump is looking shifty eyed and starting to complain…is that a show for the masses or does he really want the Fed to stop? The Fed, as always, sounds resolute right up until the pain starts and is suddenly all wobbly. Is that a show for the masses or ??? All I know is we better get Dr. Drew in here or somebody is gonna bolt. Addicts love drama…

People may say what they want about DJT, but he’s not stupid. He knows what’s going on with the Fed, politics and the economy.

https://www.newsmax.com/Finance/DavidStockman/donald-trump-bubble-economy-debate/2016/09/28/id/750579/
By David Stockman | Wednesday, 28 Sept. 2016 10:17 AM
“We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that’s doing political things. This Janet Yellen of the Fed. The Fed is doing political — by keeping the interest rates at this level. And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job. The Fed is being more political than Secretary Clinton.” – DJT

The Donald doesn’t want this to pop on his watch, but it’s going to happen anyway. We’re too far along in the cycle. Think Herbert Hoover… Ignore the temporary pop due to “Santa Claus rally”. It’s not different this time.

Are you going to HODL your Bitcoin right on through the end of its death spiral?

Opinion: Bitcoin is close to becoming worthless
By Atuyla Sarin
Published: Dec 3, 2018 5:20 a.m. ET
Bitcoin is now entering a death spiral

Just one year has passed since bitcoin enthusiasts forecasted that the cryptocurrency would hit a price of $1 million.

But that was then. With the price of bitcoin (BTCUSD, -4.16%) having fallen almost 80% from its peak, and now trading well-below the support level of $6,000, everyone is wondering where it goes from here.

The answer is, a swift and painful drop to zero.

In a MarketWatch column I wrote last April, I explained what it would take for bitcoin to become worthless. Bitcoin is getting close to that point. As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral. That is, without the mining activities supporting the ledger that maintains the records of who owns what — bitcoin is, after all, a set of encrypted numbers that cannot establish the ownership of anything — bitcoin will become worthless.

A typical asset has a set of cash flows, and its value is driven by investors’ expectations of those cash flows. Bitcoin has no cash flows. In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining. While there are many estimates of bitcoin’s cost of mining, most suggest it is close to $5,000 per coin. Furthermore, even though traditional commodities like gold require significant investments, with limited technical knowledge and capital, anyone can mine bitcoins. Thus, the price of bitcoin must be close to the fully loaded cost of mining it (meaning you are modestly compensated for your time and capital outlay). So, one would expect the price of bitcoin to fluctuate somewhere around that point.

Moreover, there is one additional complication: Unlike gold, which, probably due to a historical accident, is universally accepted as a store of value, bitcoin is a digital commodity with no such universal acceptance as a store of value. While the original buyers and miners of bitcoin were true believers in the paradigm shift they thought it promised, and were willing to make the necessary investments for future gains, the more recent buyers and miners have been run-of-the-mill, greed-driven investors.

Are those separate activities? I believe that the “work” that is being done by the miners is maintaining the ledger. They are rewarded in bitcoins. If the work gets too expensive they stop doing it. Then the ledger is no longer maintained, then it becomes impossible to spend bitcoin. Which would be a negative. Isn’t it 10min to verify a transaction today? vs 3 seconds for a piece of paper with a picture of a dead president.

“As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral.”

Oh? And why is that?

“… without the mining activities supporting the ledger that maintains the records of who owns what — bitcoin is, after all, a set of encrypted numbers that cannot establish the ownership of anything — bitcoin will become worthless.”

So the act of mining bitcoin maintains the records of who owns what and without this mining nobody can learn who owns what and once the ever-increasing cost of mining bitcoin exceeds the price (aka the value) of bitcoin then this mining will stop and the value of bitcoin (aka its price) will thus go to zero.

Sign me up!

Bahahahahahahaha … the entire planet is populated by a bunch of dummies.

“Almost 22 million bitcoin wallets have been set up globally.
An estimated five percent of Americans hold bitcoin.
2.9 to 5.8 million active bitcoin users according to a Cambridge University study.
Leading exchange Coinbase has over 13 million users.
Emerging markets users – who are often not considered in statistics – are likely in the millions.”

Yet despite all this bad news in RE, the Real Estate peddlers in Las Vegas still have hope. They are strong believers of affirmation and misleading through the media can maintain a market of knife catchers. This won’t end well…

This is really just a replay of 2006. What these realtors/economist seem to be denying is the cyclical nature of assets, and more pertinent, human nature.

In approximately 1987 we had the S&L crisis. Most do not remember how large that was. Part of that was student loan defaults. Sound familiar? I was an agent with an auction company at that time and we sold the assets of Florida Federal Savings’ headquarters in St. Petersburg, fl. It was the largest facility I had ever seen. 3 days, 12,000+ items including a fleet of vehicles, IBM AS400 main frame, and 26 buildings full of contents. This failure was because of student loans. We repeated this process many times around the country. Unimaginably large.

What came out of the whole 5 year debacle was the Financial Institutions Recovery and Reform Enforcement Act (Firrea) which was supposed to prevent future financial institutions failures. Period ended about 1994. Real estate problems were not unlike today and the unwind of Lincoln Savings and the Charles Keating 5 in Arizona was the poster case.

Fast forward about 12 years we entered the GFC and we adopted new measures. Ended about 2011.

So now we are entering a new downturn. What will happen? Who knows. However many of the same ingredients are once again in place. Those who forget history are doomed to repeat.

I’m of the belief that “student loans are holding back homebuyers” is a red herring BS argument, just like “pent up demand”. Sure, some young folks have a boatload of debt from a basket weaving college, but the average SL debt is $30,000 – the price of a new Toyota RAV4 – and most are getting good STEM degrees or Vocational degrees to support a higher income, which allows them to service the debt. The “worthless college degree” is ‘comments section’ old people fodder, much like “If kids today stopped buying Starbucks they could afford my house” argument.

Younger people today are the children of the housing bubble in 2008. They remember what it was like for them or their friends parents to lose “their” house, and they have no desire to repeat those mistakes. I say good for them.

I know I’m generizing, but I’m fighting against the “Young people are so dumb because they won’t buy my shack” argument. It’s gets old. Millennials aren’t buying houses, and I say to them congratulations!

A lot of truth in those generalizations. I did a deep dive into student loan debt a while back. The worst off are often those with the smallest balances who also didn’t finish their degree. They received no marketable skill bump from the diploma-premium. Often those students with very large debts are handily able to pay back because they are in med school or law school. The amount of debt per se isn’t always what is most important in student debt. What counts is whether the debt incurred is going to have some reasonable chance of being paid off with a higher wage premium. Some of the students most shafted are those who attended these private colleges, like Trump University, Corinthian College, or the Art Institute of [insert your city here].

I think my idea still is valid. Treat your college degree like any other asset you cant pay for, and repossess it. Cancel it So any job that requires a 4 year degree, you will never be able to apply for or get hired for. So start your life over debt free to and make a career at Starbuxxxx.

Sure you will have the knowledge, but today employers and UNIONS want that piece of paper on the wall. Also since you dont have a degree the college cannot issue a transcript and companies can fire you for not having a valid one And cannot be sued to wrongful termination. Since you violated the employment requirements.

It may be harsh but its probably needed to end the college bubble too. It is totally wrong to discharge them in Bankruptcy. But you could always move to another country and never come back.

The point I was illustrating with the Florida Federal example was that the torpedo can come from so many directions and things kind of crater simultaneously or atleast in a fairly rapid cascade once the first shoe drops.

I anticipate a fairly rapid darkening of the atmosphere from here. A bit mixed right now but can change quickly and already has over the past couple months but not yet to panic level. Many optimists still.

Also, FIRREA was supposed to prevent another debacle after the S&L crisis. How well did that work? Dodd-Frank today? We are right on schedule for the next shoe to drop.

Stay tuned. Good buying opportunities will present themselves but a bit early now.

This “cycle”, some call it the business cycle, is overlaid upon the largest expansion of credit in history and it’s been building through all the cycles mentioned. At some point we won’t just automatically swing over to the next higher peak because the immense pustule it sits atop will have burst and cratered.

Not all economists are clueless about this pattern. If you haven’t checked out this book yet, I recommend it, as it focuses on the cyclical nature of what appear to be manufactured financial crises:
John Kenneth GalbraithA Short History of Financial Euphoria

U.S. stocks rose sharply after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day ceasefire in the trade war that has weighed heavily on global stock markets for most of 2018.
The Dow Jones Industrial Average surged 430 points, while the S&P 500 gained 12 percent. The Nasdaq Composite outperformed, surging 2. percent.